Post on 03-Jul-2020
1 | Alaska Communications
alaskacommunications.com
Drexel Hamilton Telecom, Media & Technology Conference September 2016
2 | Alaska Communications
alaskacommunications.com
Safe Harbor StatementForward-Looking Statements
We have included in this presentation certain "forward-looking statements," as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's beliefs as well as on a number of assumptions concerning future events made using information currently available to management. You are cautioned not to put undue reliance on such forward-looking statements, which are not a guarantee of performance and are subject to a number of risks, uncertaintiesand other factors, many of which are outside Alaska Communications' control.
For further information regarding risks and uncertainties associated with Alaska Communications' business, please refer to the Alaska Communications’ SEC filings, including, but not limited to, our annual report on Form 10-K, quarterly reports on Form 10-Q filed subsequently, and other filings with the SEC, included under headings such as “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Non-GAAP Measures
In an effort to provide investors with additional information regarding our financial results, in particular with regards to our liquidity and capital resources, we have disclosed certain non-GAAP financial information such as Adjusted EBITDA, Free Cash Flow and Net Debt, which management utilizes to assess performance and believes provides useful information to investors. Adjusted EBITDA and Free Cash Flow are non-GAAP measures and should not be considered a substitute for net cash provided by operating activities and other measures of financial performance recorded in accordance with GAAP. Reconciliations of our non-GAAP measures to our nearest GAAP measures can be found in the following tables and in greater detail on our website at http://www.alsk.com in the investment data section. Other companies may not calculate non-GAAP measures in the same manner as ACS. We do not provide guidance for Net Income and Net Cash Provided (Used) By Operating Activities.
Adjusted EBITDA is defined as net income before interest, loss on extinguishment of debt, depreciation and amortization, gain orloss on asset purchases or disposals including the gain on the sale of our wireless operations, earnings from equity method investments, taxes, wireless transaction-related costs, loss attributable to non-controlling interest, stock-based compensation,pension adjustments, and expenses under the company’s long term cash incentive plan (“LTCI”). LTCI expenses are considered part of an interim compensation structure to mitigate the dilutive impact of additional share issuances for executive compensation. Distributions from AWN are included in Adjusted EBITDA.
Free cash flow is defined as Adjusted EBITDA, less recurring operating cash requirements which include capital expenditures, netof cash received for a fiber build for a carrier customer, less cash interest expense, significant non-cash revenue associated with our interconnection agreement with AWN and GCI, and proceeds on sale of fiber to our joint venture partner.
3 | Alaska Communications
alaskacommunications.com
Alaska CommunicationsPremier fiber broadband and managed IT services provider in Alaska
Focus
Technology
Growth
Margin$54.4M Adjusted EBITDA LTM Q2’16, targeting 4-8% annual growth
$2M FCF LTM Q2’16; 2016 Guidance ~$5M
Reduced debt by $401.9M since 2011; 3x Net Leverage Ratio as of Q2’16
Two diverse fiber routes from Alaska to the Lower 48
Extensive diverse terrestrial routes within the state
IT partnerships bring solution differentiation and secure cloud solutions
Focus on Business & Wholesale since 2011
100+ Years of service in Alaska
~650 employees
~$224M Revenue LTM Q2’16, targeting 2-5% annual growth
22% Business & Wholesale (B & W) revenue growth 2012-2015
B & W 60% of total wireline revenues LTM Q2’16, targeting >8% annual growth
4 | Alaska Communications
alaskacommunications.com
Well Positioned in a Growing Market with Unique Competitive Dynamics
Focused on Deep Relationships with Business & Wholesale Customers
Best-in-Class Fiber Network with Innovative Products
Revenue Growth & Operating Scalability = Margin & Free Cash Flow Upside
Deep Management Experience and Expertise
Investment Highlights
5 | Alaska Communications
alaskacommunications.com
Broadband,27%
Voice, 11%
Managed Network, 15%
IT Services, 47%
Opportunity: High
Margins: Moderate
Competition: Fragmented
Opportunity: High
Margins: Moderate
Competition: Limited
Opportunity: High
Margins: High
Competition: Limited
Opportunity: Low
Margins: High
Competition: Limited
Attractive and Growing Market
Alaska
Communications
is gaining share in
its target high-
margin service
markets
Unique mix of competitive environment, growth opportunity and margin potential
creates conditions for driving profitable growth over the long term.
Unique mix of competitive environment, growth opportunity and margin potential
creates conditions for driving profitable growth over the long term.
$1.5B Addressable Wireline Market, 85% Business, Growing 3% to 5% Annually
6 | Alaska Communications
alaskacommunications.com
Exceptional Market Opportunity
Cloud adoption: Drives business broadband demand
25% share in business broadband / telecom:
Creates headroom for continued long term growth
IT services: Addresses larger wallet share of IT spend, creating opportunities for further growth
Sustainable Competitive Advantage
Network quality: Provides secure and reliable solutions
IT partnerships: Complement broadband network further
driving cloud enablement
Service oriented culture: Creates sustainable
differentiation with customers
Well Positioned in Market
Alaska’s Macro Outlook: Change Creates Opportunity
State goes into Fiscal 2017 with:
‒ ~$54B in State’s Permanent Fund, which will continue to generate earnings over time
‒ ~$11B in State reserves providing runway
‒ Projected deficit of ~$3.5B
Sectors with the greatest exposure to oil prices are the state government and energy sector. Alaska Communications has:
‒ Low exposure to both sectors – collectively less than 5% of our total revenues
‒ Low share of wallet in both sectors – less than 10% – far lower than our aggregate market share
Creates incentive to look for change and creates new revenue opportunities for Alaska Communications as customers
seek greater value not currently provided by the incumbent
7 | Alaska Communications
alaskacommunications.com
First SIP product implementation
‒ In all major metro markets in Alaska
‒ QoS Enabled, Secure, MEF Certified IP Network
Hosted VoIP in all major metro markets in Alaska
‒ Upgraded to High Definition Voice with Unified
Communications
Proactive management of Enterprise Class networks
‒ Customer Portal capabilities for self management
and reporting
Expanding Strategic Partnerships and Innovative Products
Managed Security:
‒ Watchguard IT
IT Infrastructure:
‒ Microsoft
‒ Barracuda
Cloud:
‒ Microsoft
‒ CyrusOne
Partnerships with blue-chip companies and access to the latest products allow
Alaska Communications to deliver best-in-class customer experiences
Selected Partnerships Next Generation Products
8 | Alaska Communications
alaskacommunications.com
Best-in-Class Fiber Network
Extensive long haul fiber network: - Two diverse submarine routes from Alaska to the Lower 48 and diverse terrestrial routes
within the state
- Key fiber assets on Alaska’s North Slope supporting the oil and gas industry
- High-capacity network extensions to customer locations and data centers throughout the
lower 48 states
High Quality Metro access fiber & broadband network to serve Business and
Wholesale customers:- Extensive network has been built to serve business customers
- All military bases on fiber
- 100G wavelengths in state backbone with diverse routes
- Commencing deployment of GPON access nodes in business areas
State of art secure all IP network:- Juniper IP/Advanced Ethernet core – provides statewide IP & MEF 2.0 Certified Ethernet
services
- Widely deployed Metaswitch voice application soft-switch network
- CyrusOne InternetExchange and Microsoft ExpressRoute partnerships bring security for cloud
computing
9 | Alaska Communications
alaskacommunications.com
Competitive Positioning
Product and Network Capabilities
Lead with Customer Service
‒ Customer Satisfaction is a measure for
management compensation
Talent
‒ Deeply tenured and talented workforce with
significant technical training and certifications
‒ Diverse, well-rounded senior executive team
each with decades of experience and industry
leaders in their fields
Service Capabilities
Metro Ethernet Forum (MEF) Certified Network
Cloud Enablement Partnerships:
‒ ONLY Microsoft ExpressRoute partner in
Alaska
‒ ONLY CyrusOne InternetExchange partner in
Alaska
Track Record of Innovation in Alaska:
‒ First Internet service provider
‒ First Metro Ethernet Network
‒ First MPLS Network
‒ First VPLS Network
‒ First SIP trunking capability
‒ First MEF Certifications
Technology and Service provide differentiation.
Growth driven by gain in broadband market share and increased wallet share of
business IT spend.
10 | Alaska Communications
alaskacommunications.com
Fo
r B
us
ine
ss
IT Services
Data Networking
Internet Connectivity
Private and secure connections to the cloud offered over an
advanced fiber based Ethernet network
First and only carrier in Alaska with Carrier Ethernet 2.0
Certified Services
Voice
Communications
Secure hosted voice over internet solutions
State of art SIP trunking services provide IP voice
leveraging on-premise IP PBX implementations
Provides voice to residential customers
Lifeline program provides access to services for only $1.00
a month to qualified Alaskans
Fo
r H
om
e Unlimited Internet
Home Voice
Provides support and management of IT systems, including
24x7 proactive network monitoring
Offers customized managed communications solutions to
businesses with data security or network optimization needs
Provides internet connectivity to small to mid-sized
businesses and offers up to 200 Mbps with a dedicated line
Business Extreme Broadband provides reliable, high-speed
Internet with no data caps and no overage charges
High-speed Unlimited Internet service without data caps or
add-on fees for residential customers
Provides a dedicated line with individual connections to
ensure reliability
Product and Services: Business & Wholesale
Contributing 60%
2012 Revenue Mix
Consumer Business/Wholesale Regulatory/Other
Consumer Business/Wholesale Regulatory/Other
LTM 6/30/16 Revenue Mix
11 | Alaska Communications
alaskacommunications.com
Strategic Commercial
Healthcare /
EducationState / LocalOil & Gas
Kodiak Area Native Assoc.
Carrier / Fed SMB
Diverse Customer Verticals
12 | Alaska Communications
alaskacommunications.com
Deep Relationships with Quality Customers
“... response to [our] WAN RFP was well written and
provided the greatest value to [us] going forward and in
this fiscal environment will allow [us ] to future-proof our
Network capacity for some time to come ...”
“…You really listened to us, really listened to our needs
and it showed in your value adds…”
“ … The system installed in our facility is hands down the
best of all 11 educational institutions like ours … Using
your infrastructure drawings as a baseline … will have
capabilities beyond what we could have imagined prior to
this project.”
“…Your solution provided options for our business that we
hadn’t even considered before. We are excited to be a
business partner with ACS…”
Secured several large and strategic wins, including the State of Alaska, Akeela, federal agencies
and educational institutions.
Retained existing customer relationships with multi year contract extensions, including a large
national carrier, a federal contractor and local electric utilities.
13 | Alaska Communications
alaskacommunications.com
Relationship Case Study: Akeela
Akeela, a non-profit, offers a comprehensive array of services for the prevention and treatment of substance and alcohol abuse in Anchorage and throughout Alaska
4 offices with counseling contract for 23 Department of Corrections (DOC) locations
Alaska Communications customer since 2015
Customer
Description
Network with increased capabilities to meet DOC requirements and reduce network administration costs
Enhanced network to utilize technology universally and remotely to better serve customer needs and significantly reduce costly travel requirements to sites
Need
Leveraged Akeela’s network hub in Ketchikan, enabling Akeela to receive funding for each of their remote locations, including the correctional facilities
Providing Akeela full access to EMR software, teleconference and video solutions for training and clinical visits, one-touch dialing, and local Anchorage dial tone for all sites
Enabling network management from Anchorage rather than traveling to each site to make changes
Solution
Offered
Consultative solution development: Critically important to generate customer confidence
Bringing partners (Microsoft) to the table: Lends credibility to the solution
Complete solution: Advanced data network, cloud based Office 365, and Microsoft ExpressRoute collectively meet the needs of the customer
ALSK
Differentiation
14 | Alaska Communications
alaskacommunications.com
($ in M)Q2
2016
Q2
2015% Increase LTM 6/30/16
LTM
6/30/15% Increase
Business and
Wholesale$33.9 $31.2 8.6% $132.7 $120.1 10.5%
Consumer $9.5 $10.1 (6.4%) $38.7 $41.2 (6.1%)
Regulatory $12.9 $13.4 (3.6%) $52.6 $54.1 (2.8%)
Total Wireline
Revenue$56.3 $54.7 2.8% $223.9 $215.4 3.9%
Q2 Performance Update
Business and Wholesale drives top-line performance, growing to 60.2%
of total wireline revenue at the end of Q2 2016.
15 | Alaska Communications
alaskacommunications.com
$38 $27
$17 $21 $19
$16
$21 $29
$30
$20
$54 $48 $46
$51
$39
2012 2013 2014 2015 LTM 6/30/16
Growth vs. Maintenance Capex
Maintenance CapexGrowth Capex
Operating Scalability Driving Margin and FCF Upside
$49.9
$54.4
2015 LTM 6/30/16
Adj. EBITDA (2)Revenue (1)
ConsumerBusiness/Wholesale Regulatory/Other
$98.6 $100.7 $109.9 $120.2 $132.7
$38.8 $40.7$41.3
$39.9$38.7
$63.5 $57.9$63.8 $59.7 $52.6
$200.8 $199.2$215.1 $219.8 $223.9
2012 2013 2014 2015 LTM 6/30/16
Note: Dollars in millions.
(1) Pro Forma for AWN divestiture.
(2) 2015 Includes one month of AWN financials as the operation was divested on February 2, 2015.
Free Cash Flow (2)
($4.0)
$2.0
2015 LTM 6/30/16
16 | Alaska Communications
alaskacommunications.com
($ in M)2015
Guidance
2015
Actual
Results
2016
Guidance1H 2016
% of
Guidance
Total Service & Other Revenue ~$220 $219.8 ~$228 $112.6 49%
Run Rate Adj. EBITDA Exiting
2015$54 - $56 $55.4 ~$59 $28.0 47%
Net Capital Spending $34 - $36 $32.9 ~$35 $13.7 39%
Free Cash Flow (1) NA ($3.7) ~$5 $4.1 82%
Net Debt ~$159 $161.7 (2) NA $163.8 NA
Total Debt (3) NA $188.7 NA $179.5 NA
Net Debt Leverage Ratio NA 2.9x NA 3.0x NA
Track Record of Meeting Financial Goals & Milestones
(1) Quarterly Free Cash Flow fluctuates and should not be viewed as an indicator of annual performance. While onetime events, seasonality of capital spend and the timing of interest payments may result in negative Free Cash Flow in one or
more quarters, we reaffirm our guidance for annual Free Cash Flow.
(2) Completed refinance of senior debt, bringing net debt leverage ratio to 2.9x, positioned as one of lowest levered companies in industry in September of 2015.
(3) Total Debt balance is net of debt issuance costs and debt discount.
17 | Alaska Communications
alaskacommunications.com
RevenueShare of 2015 Total
Wireline Revenue
Directional
Annualized Growth
Total Wireline 2% - 5%
• Business and Wholesale 58% At or above 8%
• Consumer 18% Stable starting 2017
• Regulatory Revenue 24%
• High Cost Support 9% Flat
• Access 15% (4)% - (5)%
Metric Directional Annualized View
Adjusted EBITDA 4% to 8% growth
Free Cash Flow Positive in 2016, strong growth thereafter
• CapEx ~$35M
• Cash Interest ~$13M
• Cash Taxes Subject to AMT, expected to be de minimis
Directional View Over the Next Two – Three Years
18 | Alaska Communications
alaskacommunications.com
Committed to Driving Shareholder Value
Unique Competitive Dynamic
Growing Market
Products and Partnerships
LEAN creates organizational capacity
Customer service drives retention and acquisition
EBITDA and FCF growth drives shareholder value creation
Top Line
Growth
Margin
Expansion
Shareholder
Value
19 | Alaska Communications
alaskacommunications.com
APPENDIX
20 | Alaska Communications
alaskacommunications.com
2016 Alaska Communications strengthens cloud enablement through agreements with CyrusOne and Microsoft
2015 Alaska Communications buys network on the North Slope
2015 Alaska Communications sells its interest in the Alaska Wireless Network and uses the proceeds to pay down
debt—becomes one of the lowest levered companies in the industry
2013 Alaska Communications launches the Alaska Wireless Network joint venture with GCI, reducing exposure to
a competitive wireless sector with declining roaming revenues
2011 Alaska Communications launches Business & Wholesale Broadband growth and deleveraging strategies
2008 Alaska Communications acquires the Northstar submarine cable, and builds AKORN, giving Alaska diverse
submarine routes to the LOWER 48
2000 Alaska Communications acquires Internet Alaska Inc., the second largest Internet service provider in Alaska
1999 Alaska Communications completes an initial public offering of stock to become the state’s first statewide
telecommunications company
1998 Alaska Communications is formed
1949 Telephone Utilities of the Northland begins operations
1921 Anchorage Telephone Utility begins operations
1893 The Juneau and Douglas Telephone Company begins operations
Company History
21 | Alaska Communications
alaskacommunications.com
Anand VadapalliPresident and Chief Executive Officer
Joined Alaska Communications in August 2006
Has served in several leadership roles, including Chief Operating
Officer, before taking his current role as CEO in February 2011
17 years of telecom sector experience
Experience: Valor Telecom, Cincinnati Bell
Laurie ButcherSenior Vice President, Finance
Joined Alaska Communications in 1997
Has served in several leadership roles, most recently as Vice
President, Finance and Controller, before taking her current role
in October 2015
More than 26 years of finance experience
Experience: Price Waterhouse, Deloitte & Touche
Leonard SteinbergSenior Vice President, Legal, Regulatory &
Government Affairs
Joined Alaska Communications in 2000
Responsible for the company's legal affairs and risk management
functions
Experience: Perkins Coie
Bill BishopSenior Vice President, Business Market
Joined Alaska Communications in August 2004
Has served in several leadership roles in consumer and business
sales and operations before taking his current role in September 2015
More than 25 years of telecom and business leadership experience
Experience: AT&T
Randy RitterSenior Vice President, Shared Services
Joined Alaska Communications in August 2013
Leads shared services, providing support to both business and
consumer markets
More than 20 years of telecom experience
Experience: Sprint, One Communications, MacroSolve
Mike ToddSenior Vice President, Consumer Market
Joined Alaska Communications in 2008
Focused on revitalizing the consumer business and improving
profitability while maintaining customer satisfaction
More than 25 years of telecom leadership experience
Experience: Sprint, Nortel, Ericsson
Well-rounded Managerial Expertise
22 | Alaska Communications
alaskacommunications.com
Quality Network Serving Alaska’s Major Population Centers
23 | Alaska Communications
alaskacommunications.com
1.4% 1.4%1.3%
1.2%
1.4%
2011 2012 2013 2014 2015
63
56
49 44
38
83 81 80 79 77
39 37 39
37 33 19 19 19 19 19
2011 2012 2013 2014 2015
Broadband ARPUVoice ARPU
Voice Connections Churn RateVoice & Broadband Access Lines
Voice Connections Churn Rate
Voice ARPU Consumer Voice ARPU Business Broadband ARPU Consumer Broadband ARPU Business
$26.85 $26.64 $26.71 $26.68 $27.65
$25.16 $24.25 $23.78 $23.52 $23.40
2011 2012 2013 2014 2015
$35.27 $42.46 $48.92 $53.17 $58.97
$135.61$152.09
$175.34$196.16
$220.07
2011 2012 2013 2014 2015
Voice Consumer Broadband BusinessVoice Business Broadband Consumer
In t
ho
usa
nd
s
Select Connection and ARPU Metrics
24 | Alaska Communications
alaskacommunications.com
Current Capitalization
($ in millions) 6/30/2016
Capitalization Amount Maturity Pricing Pricing
Cash and Cash Equivalents $22.2
Revolver ($10mm) - 1/2/2018 L+450 bps 1.000%
Term Loan B (First Lien) 63.2 1/2/2018 L+450 bps 1.000%
Term Loan B (Second Lien) 25.0 3/3/2018 L+850 bps 1.000%
Capital Leases and Other Long-Term Obligations 3.8
Total Secured Debt 92.0
Senior Convertible Notes 94.0 5/1/2018 6.250% -
Total Debt 186.0
6/30/16 LTM Operating Statistics
Revenue $223.9
Adj. EBITDA 54.4
6/30/16 Credit Statistics
Total Secured Debt / Adj. EBITDA 1.7x
Total Debt / Adj. EBITDA 3.4x
Net Debt / Adj. EBITDA 3.0x
6.7x
4.5x4.1x
3.5x3.0x 3.0x 2.9x
2.2x
Peer Comparision – Net Leverage Ratio
Median (3.3x)
25 | Alaska Communications
alaskacommunications.com
(unaudited, $ in thousands)LTM 6/30/16
Net income $ 1,864
Add (subtract):
Interest expense 15,886
Loss on extinguishment of debt 2,586
Interest income (27)
Depreciation and amortization 34,011
Loss on disposal of assets, net 378
Gain on sale of assets (7,092)
Income tax expense 1,180
Stock-based compensation 2,176
Long-term cash incentives 1,544
Pension adjustment 175
Gift of services (388)
Net loss attributable to noncontrolling interest 117
Wireless sale transaction-related and wind down costs 1,964
Adjusted EBITDA $ 54,374
Reconciliation of Non-GAAP Measures – Adjusted EBITDA
26 | Alaska Communications
alaskacommunications.com
Reconciliation of Non-GAAP Measures – Adjusted EBITDA
(unaudited, in thousands)
Year Ended
Dec. 31, 2015
Year Ended
Dec. 31, 2014
Six Months
Ended June 30,
2016
Six Months
Ended June 30,
2015
Net income (loss) $ 12,885 $ (2,780) $ 336 $ 11,357
Add (subtract):
Interest expense 19,841 34,410 7,721 11,676
Loss on extinguishment of debt 4,878 - 336 2,628
Interest income (58) (83) (11) (42)
Depreciation and amortization 33,867 32,583 17,160 17,016
Loss in impairment of goodwill - 5,986 - -
Loss (gain) on disposal of assets, net (46,252) 126 152 (39,386)
Earnings from equity method investments (3,056) (35,960) - (3,056)
AWN distributions received/receivable, net 765 50,000 - 765
Income tax (expense) benefit 10,200 (1,787) 299 9,319
Stock-based compensation 2,008 2,511 1,447 1,279
Long-term cash incentives 1,781 2,042 405 642
Pension adjustment 134 - 41 -
Gift of Services (388) - - -
Earthquake related expense - 1,228 - -
Net loss attributable to noncontrolling interest 69 - 67 19
Wireless sale transaction-related and wind down costs 13,272 4,297 - 11,308
Adjusted EBITDA $ 49,946 $ 92,573 $ 27,953 $ 23,525
27 | Alaska Communications
alaskacommunications.com
Reconciliation of Non-GAAP Measures – Free Cash Flow
(unaudited, in thousands)
Year Ended
Dec. 31, 2015
Year Ended
Dec. 31, 2014
Six Months
Ended June
30, 2016
Six Months
Ended June
30, 2015
Adjusted EBITDA $ 49,946 $ 92,573 $ 27,953 $ 23,525
Less:
Capital expenditures excluding acquisition price of North Slope fiber
network(39,914) (46,423) (13,662) (15,133)
Milestone billings for fiber build project for a carrier customer 7,000 5,960 - 2,500
Net capital expenditures (32,914) (40,463) (13,662) (12,633)
Purchase of North Slope fiber network
Acquisition price (11,000) - - (11,000)
(Paid) less: 50% due in 2016 5,500 - (5,500) 5,500
Proceeds on sale of fiber to joint venture partner 2,650 - 2,650 2,650
Less: other cash proceeds 400 - - 400
Net North Slope purchase (2,450) - (2,850) (2,450)
Amortization of GCI/AWN capacity revenue (2,169) (3,151) (1,025) (1,129)
Earthquake related expense - (1,228) - -
Interest paid (16,101) (31,562) (6,359) (8,941)
Free cash flow $ (3,688) $ 16,169 $ 4,057 $ (1,628)